How much should you have saved by 40?

Your 40s can be a tough decade, financially speaking.

You might have many years of repaying a mortgage ahead of you. If you have children, they need to be paid for too. You may even have to start planning care for aging parents. It’s a lot.

On the flipside, your income may well be on the rise as your career progresses and you enter your peak earning years. By age 40 it is to be hoped you’ve given yourself a financial footing in life. But how much should you have saved by then to achieve that?

• Read more - Savings by age: how much should you have by 30, 40, 50 & 60?

There are several ways you can answer that question. You might want to know the amounts you need to be setting aside now to achieve financial security in the future. Or it might be more useful to know the size of the savings pot you need as a proportion of your earnings. Some people want to know how their savings compare to other people their age.

All of these can be useful in understanding how your savings are progressing. Here we lay out that information so you can see the savings landmarks you might need to hit by age 40.

Remember - targets like these can sometimes appear hard to reach, particularly if you’ve delayed your savings to prioritise other things. That’s OK - it’s still useful to understand them and gauge your progress. Even if you feel you’re behind on your saving there is almost always something you can do to improve the picture.

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Savings as a proportion of salary

It can be useful to look at savings as a proportion of the money you earn. Fidelity has previously produced broad guidelines to help people understand how much they need to have saved by different ages, shown as a multiple of their salary.

For people aged 40, Fidelity’s retirement savings guidelines recommend an amount in savings worth two times your salary¹ in order that you have enough to maintain your standard of living in retirement. So, someone earning £50,000 would need £100,000 in savings - which can mean money both inside and outside of pensions.

How do you compare?

The government publishes statistics of levels of saving by age. Specifically, these cover the money held by individuals in ISAs and pensions. The most recent figures cover the period up to 2022.

The government’s statistics show that, for those holding ISAs and pensions in the 35-44 age group, the average held in ISAs is £13,527², while the median amount held in pensions is £39,500³.

What do you need to generate £50k a year in retirement?

Sometimes, big, round targets work best. Lots of people will have a figure in mind for the income they hope for in retirement. For example - how much would you have to save in order to generate a £50,000 a year income when you retire?

To be clear - this is a very challenging target that requires some serious saving. In reality, only a small proportion of people are likely to generate this kind of retirement income. Nonetheless, knowing what it would take gives you something to work towards. 

The Fidelity Pension Drawdown Calculator helps you calculate the sort of pension pot you need to get that income, assuming you want your income to grow by 2% a year.

If you are 65 and seeking annual income of £50,000, the pot you need climbs to just over £1m - another big target. This is the pot that would be invested to generate income - therefore after any tax-free cash has been taken.

At those levels, your pot would run dry by age 95 with average investment performance, but just 86 if the investment performance is poor.⁴

Using our example of someone on track to build a pot of just above £1m, to provide income of £50,000 in retirement, a person aged 40 needs £149,159 in savings and to be contributing £664 a month to them, with contributions rising by 2% a year. This assumes they achieve 5% investment growth after all fees.⁵

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Please note that these guidance tools are not a personal recommendation in respect of a particular investment. If you need additional help, please speak to an authorised financial adviser. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.